In Search of China's Development Model

Beyond the Beijing Consensus

S. Philip Hsu, Yu-Shan Wu, Suisheng Zhao

• Publisher: Taylor & Francis
• Year: 2012
• Print ISBN: 9780415587488
• eBook ISBN: 9781136852091
• Edition: 1
• Topic: Business
• Subtopic: International Business
• Index: Business

This book examines the development model that has driven China's economic success and looks at how it differs from the Washington Consensus. China's Development Model (CDM) is examined with a view to answering a central question: given China's peculiar matrix of a socialist party-state juxtaposed with economic internationalization and marketization, what are the underlying dynamics and the distinctive features of the economic and political/legal/social dimensions of the CDM, and how do we properly characterize their interrelations? The chapters further analyse to what extent and under what circumstances is China's development model sustainable, and to what degree is it readily applicable to other developing countries.

Based on their findings in this volume, the authors conclude that the defining feature of the CDM's economic dimension is "Janus-faced state-led growth, " and the political/legal/social dimension of the CDM is best characterized as "adaptive post-totalitarianism." The contributors illustrate that the CDM's parameters are shown to be much less sustainable than the CDM's outcome in developmental performance and the extent to which the CDM can be applied to other late-developers is subject to more qualifications than its sustainability.

1 In search of China’s development model

Beyond the Beijing Consensus

S. Philip Hsu

After three decades of reform, China’s unremittingly phenomenal economic growth together with its sheer size of population and territory, and particularly some of its enduring socialist legacies, has rendered its development and ascendancy a globally vital reality of our time. Apart from prompting debates over how the country’s external influence would impinge upon contemporary international politics and economics, China’s rise, bolstered by a stellar growth record, also makes a compelling case for an intellectual reappraisal of what factors contribute to such a success for the reference of the other late developers and, as some Western analysts purport, for industrialized countries as well.

The intellectual appeal of China’s development experiences and approach has turned increasingly salient at the global level in recent years. Justin Yifu Lin, one of China’s leading economists and advisors to policymakers, was selected in February 2008 by the World Bank as its senior vice president and chief economist, a post traditionally assumed by scholars from the U.S. and Europe, where they had exerted remarkable influence on the institution’s policy prescriptions and intellectual agenda. Lin asserted right after the nomination that the lessons from China’s development path would provide a crucial reference for the World Bank to shore up its poverty-fighting role, and for other developing nations to outgrow socioeconomic backwardness.¹

At the same time, the Washington Consensus (WC)—often seen as the leading epistemic and policy paradigm for developing countries since 1989 when John Williamson initially coined the term—has confronted mounting disapproval, primarily for failing to live up to its promises on developing economies. This leads to major reassessment as well as revision in its core tenets. The WC’s questionable credibility and the particular way in which WC is reformulated both add to the aura of China’s development strategy as an alternative avenue to modernization. In Latin America and Africa, the policy prescriptions for economic development recommended by the World Bank, the International Monetary Fund (IMF), and the U.S. Treasury Department, largely conceived to be associated with the WC—albeit with heavy oversimplification or misinterpretation on occasions—were widely employed during the 1990s. After a decade of adopting such policies, the overall macroeconomic performance in those areas proved far below the original expectation, and thus brought down WC’s previously sacrosanct status in the eyes of both the local communities and WC’s critics.

Latin America’s economic fiasco, reflected not only in lingering stagnation but also rising inequality, has led the WC to be further tarnished by contributing to the sweeping takeover of leftist governments in most Latin American national elections since 1998. Campaigning with anti-Western sentiments and the pledges to topple the preceding economic policies associated with the WC and portrayed as pernicious because of undue Western impact, the leftist electoral winners often revamped the policies after assuming power. Typical of the new agenda are the nationalization of natural resource extraction and other monopoly sectors, dispensing of political patronages funneled by the economic rents derived from the public ownership, and the cultivation of cronyist ties between the rulers and selected societal actors.² It seems no coincidence that all the three characteristics above—public ownership, political patronages, cronyism between the state and business—still prevalent among the incumbent Latin American leftist regimes, are also among the defining features of China’s political economy at present, as discovered by Barry Naughton and Bruce J. Dickson in their chapters in this volume and in their previous work. The left turn has already taken over eight countries in South America and two in Central America. This reality prompts the U.S. to be alarmed at the fact that it is surrendering both its hard and soft power—to China, as the most likely case—in its backyard.³

And even where a group of proponents and critics of WC collaborated to identify why the allegedly WC-driven institutional and policy prescriptions previously proposed by international financial institutions and the U.S. Treasury had failed, and to produce the Barcelona Development Agenda—literally a post- Washington Consensus consensus—China’s development experience appears outstandingly relevant.⁴ Notably, a number of the new policy recommendations can be reasonably regarded as converging with some key features often identified with China’s experience. These include a new balance between the roles for the market and the state informed by a refusal of market fundamentalism, enhanced government efficiency as a solution to market failures, the caution against indiscriminately copying the policies working well in developed countries, aversion of hasty privatization of state-owned assets, discreet liberalization and internationalization where capital account need not be the first priority, tactful application of industrial policy, and the necessity for countries to experiment with what they judge as working best for them.

In addition to the dynamics above, there emerged the grandiose discourse of the “Beijing Consensus” (BC), a brainchild of Joshua Cooper Ramo in 2004.⁵ As its name suggests, the concept alludes to the putative generalizability, if not orthodoxy, of the defining characteristics drawn from China’s overall development experience for the other late developers, comparable to as well as intended to supplant that of the WC. Whereas it seems to stand as a polemic landmark that further glorifies the Chinese experience, the concept of BC is seriously flawed as an analytic tool, as Scott Kennedy convincingly pinpoints in Chapter 2. False propositions that Ramo put forward show an inaccurate delineation and interpretation of China’s actual development experience, such as technological innovation as the prime driver of China’s growth, the longstanding pursuit of sustainable and equitable growth, and the uniqueness of China’s development policies in the sense of veritable divergence with the WC. The formality and content of a notion such as the Beijing Consensus appear to, therefore, do little to help us comprehend what China’s development experience really offers to account for the country’s accomplishment of its own and relative to others.

Amidst the tectonic shift in global intellectual atmosphere and international economic gravity elaborated above, China’s development contour as well as strategy warrants a sober exploration to flesh out the overarching logic that underpins its growing appeal, and to illuminate those components that have been either obscured or misconstrued. To this end, this book proposes “China’s development model” (CDM) as an empirically more relevant and analytically more rigorous concept than the BC, and will look into its content, as well as its implications for China and the other comparable countries, in ways not systematically entertained in the extant literature. The thesis of CDM expounded here emerges as a consensus among the contributors to this volume, through the collaboration facilitated by a conference held in Denver in May 2008, where some contributors had started dwelling on the preliminary clues in this theme during an earlier conference organized by the Institute of Political Science at Academia Sinica in Taiwan in November 2005. The central question to be answered about CDM is: given China’s peculiar matrix of a socialist party-state juxtaposed with economic internationalization and marketization, what are the underlying dynamics and the distinctive features of the economic and political/legal/social dimensions of the CDM, and how do we properly characterize their interrelations? A secondary question is: to what extent and under what circumstances is the CDM sustainable, and to what degree is the CDM readily applicable to other developing countries?

The Janus-Faced State-Led Growth

In seeking the synthesis of the main features in the CDM’s economic dimension, the contributors of this volume attempt to distinguish our analyses by underscoring four facets at the same time from the existing literature that looks into China’s economic success since 1979. First, we are concerned with China’s economic development, conceptually and empirically much broader than economic reform and transformation from a previous socialist legacy. Second, recognizing that China’s continued momentum toward deeper privatization and marketization is relatively consolidated, we deem China as a “normal” national economy in the sense that the patterns of the other late developers’ development and the analytic issues as well as prisms revolving around them are comparable to those of China.⁶ Third, we put special emphasis on the role of institutions, defined as formal and informal rules that structure actors’ incentives and capacities, to be the organizing conception in recapitulating China’s economic vibrancy. Identified at the macro and meso levels displayed in national, central-provincial, intra-party, and intra-bureaucracy arenas, the institutions under scrutiny span across economic, political, and legal spheres. Finally, wary of the pitfall of the one-sided view of China’s economic evolution that has haunted the literature, we manage to formulate the synthesis in a way that discloses both the key merits and risks thereof.

Based on the consideration above, we propound the “Janus-faced state-led growth” as the characterization of CDM’s economic dimension. A number of key elements in this thesis require elaboration to illuminate its nature. First and foremost, the state has played a much more critical role vis-à-vis the market in steering China’s economic takeoff, than that in most Western countries generally marked by a stronger adherence to the idea of laissez-faire since the Industrial Revolution. Indeed, whether it was the launching of the market-oriented reform, the revival of it in 1992, the commencement of systematic privatization in the latter half of the 1990s, or the entry into the World Trade Organization (WTO) in 2001, the state and central political leadership were widely seen as the most powerful driving force to open up a new phase of development, often well ahead of the maturation of relevant market conditions and the aspiration and demand from industries. The leading role of the state is also carefully studied and extensively acknowledged in various theoretical perspectives, such as local state corporatism,⁷ the entrepreneurial state,⁸ the regulatory state,⁹ bureaucratic entrepreneurs acting in accordance with institutional incentives shaped by the hierarchical party-state,¹⁰ and hard budget constraints imposed by the state as the key determinant of firm efficiency.¹¹ The state’s ultimate role, it has to be pointed out, is to be comprehended as to nurture and accelerate marketization, liberalization, and privatization, rather than to replace them. A close look, for instance, at the Chinese state’s major economic policies in the past three decades reveals that they follow eight of the ten formulae Williamson put forth initially in the WC, according to Scott Kennedy in Chapter 2.

The Market-Enhancing Façade of the State

The Chinese state’s role examined above brings us to the second issue: is China’s economic dynamism simply a twenty-first-century case of the East Asian developmental state, given that China appears to resemble Japan and the East Asian NIEs (Hong Kong, Singapore, South Korea, and Taiwan) a lot in the deviation from neo-classical economics, the state’s activeness and growth-promoting practices, the state’s relative autonomy, the vitality of exports for growth, the complementarity between mercantilism and authoritarianism, and the allegiance to a regional commonality? How accurate and useful is this construct for us to come to grips with the essence of CDM?

We argue that whereas the Chinese state shares a minimal set of features with those of its East Asian neighbors just mentioned, there are salient variances between them that bear on the analytic utility rather than only the delineation of crude realities expected on the notion of developmental state. On the shared features, the national governments and ruling elites in China and the other East Asian countries are both strongly committed to long-term growth, as Barry Naughton, Thomas Rawski, and Yi-feng Tao in this volume all emphasize. To this end, they all find a pivotal tool to be the role designated to the state that complements rather than supplants the market, as just mentioned. This is pronouncedly verified in this volume, through Naughton’s illustration on the momentousness of market competition for China, Rawski’s mention of openness to international economic flows, and deLisle’s demarcation of law’s utilities to include the codification of public policies that preserve the market and safeguard property rights. Such a role entails an array of specific functions of which the fulfillment requires myriad institutional and structural innovations, such as the re-engineering of the government to be “repurposed” and “incentivized” that Naughton speaks of in Chapter 4, the amelioration of administrative competence that Rawski alludes to in Chapter 5, the promotion of meritocracy that Tao examines in Chapter 6, and the recruitment of Western-trained, competent returnees into the functional bureaucracy that Kou expatiates in Chapter 9.

Nonetheless, major discrepancies stand out between China and its East Asian neighbors, rendering the concept of developmental state short of adequate precision in categorizing China as the same with the rest. Chief among the variances is the extent to which the state can be seen plausibly as a unitary actor that stands in contradistinction with the market, by demonstrating its own internally coherent preferences and translating the preference into specific industrial policy crafted or implemented by a pilot agency. The internal preferences of Japan’s and the East Asian NIEs’ states were typically reflected in their designation of specific domestic industries as national champions, and they framed industrial policies, a defining feature of the developmental state consistently underlined by Chalmers Johnson and his allies,¹² to channel vital resources into the selected sectors in order for their competitiveness and efficiency, despite unfavorable initial conditions in the market. The Chinese state, however, shows hardly any such preference due to the paucity of comparable industrial policies. For example, Eric Thun’s and Thomas Moore’s detailed accounts and dissections of the Chinese central government’s attempts to boost automobile-making, textile, and shipbuilding—three strategic sectors often dubbed as “pillar industries” (zhizhu chanye) in China—display that the central government’s institutional capacity has been simply too weak to pursue the East Asian style of industrial policy. The two analysts bluntly deny the possibility of such an industrial policy in China for similar reasons. Thun ascribes it to Chinese local governments’ support of local auto-producing firms that cancels out the central state’s coherent planning for national oriented ones, and to the failure to ensure sufficient competitiveness at the firm level as a result of the party-state’s noneconomic interest in the survival of state-owned enterprises. The central state is thus forced to nurture the domestic auto industry through its regulation on foreign investment, an apparently indirect fashion with considerable uncertainties.¹³ Moore pinpoints the central state’s incompetence to enforce the reciprocity, manifested in robust firm performance in exchange for government backing, necessary for a developmental state to make industrial policy work.¹⁴

Indeed, for the bulk of the past three decades, China’s predominant economic policy pattern was usually dubbed as “groping for stones to cross the river,” again casting into doubt whether the central state did act as a developmental state, guided by a systematic and long-term strategic vision regarding industrial development and structural transformation. Furthermore, the Chinese central government’s functional purview delimited by contributors in this volume comprises regulatory and macroeconomic management roles, but falls short of industry-specific strategic deployment and supply of crucial resources that alters targeted sectors’ comparative advantage in the market. The prudential monetary policy carried out by the central banking bureaucracy in Chapter 8, the balanced allocation of budgetary grants and bank credits between political and economic considerations in Chapter 7, the institutional refurbishment in finance and investment in Chapter 5, can be all subsumed under the ordinary fiscal and monetary policies informed by Keynesianism and practiced by national governments in market economies. Besides these, the Chinese state do...

Table of contents

• Cover Page
• Half Title page
• Routledge Contemporary China Series
• Title Page
• Copyright Page
• Contents
• Figures
• Tables
• Acknowledgements
• Contributors
• Abbreviations
• 1 In Search of China's Development Model Beyond the Beijing Consensus
• Part I Overview
• 2 The Myth of the Beijing Consensus
• 3 The China Model of Development Can it Replace the Western Model of Modernization?
• Part II The economic dimension
• 4 China's Distinctive System Can it be a Model for others?
• 5 Can China Sustain Rapid Growth Despite Flawed Institutions?
• Part III The Political Dimension
• 6 From a Socialist State to a Mercantilist State Depoliticizing Central Banking and China's Economic Growth Since 1993
• 7 Balancing Developmental Needs with Vertical and Horizontal Power Competition in China, 1993–2004
• 8 Law and the China Development Model
• 9 Elite Recruitment And the Duality of the Chinese Party-state The Mobility of Western-Educated Returnee Elites in China, 1978–2008
• Part IV The Socioeconomic Dimension
• 10 Who Consents to the “Beijing Consensus”? Crony Communism in China
• 11 The Evolution into NGOs in Contemporary China The Two Approaches and Dilemmas
• 12 Strengthening the Soft Discipline Constraint Limited Reform in Curbing Leading Cadres' power
• Index